Dividend Arbitrage Definition

[Dividend Arbitrage Definition]

Dividend arbitrage is executed by simultaneously buying put options and a corresponding amount of a stock with low volatility before the date of dividend payment. The intent is to profit from a good dividend payment, then exercise the put after collecting the dividend.

[Digital Option Definition]

The value of the payout does not rely on the degree of movement of the price because it is fixed.

[Diagonal Spread Definition]

The term diagonal spread stems from the fact that the trade is made up of a horizontal spread and a vertical spread. Diagonal spreads are used to profit from assets that are mildly bullish or bearish.

[Delta Spread Definition]

"A calendar spread is an example of a delta spread. The calendar spread is created by using options with different expiration dates to construct a delta neutral position. The expectation is for the price to stay unchanged so that the trader can sell the call options that have longer expirations as the near expiration calls lose time value and expire.

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[Delta Neutral Definition]

In a delta neutral strategy, the net change of the position is zero because the negative deltas offset the positive deltas.

[Delta Hedging Definition]

It is used when a change in the price of the underlying asset causes an attendant change in the premium of the option.

[Delta Definition]

The delta is one of the "Greeks". A delta value of 1.00 implies that an in-the-money call option is nearing its expiration, while a delta value of -1.00, implies that an in-the-money put option is also nearing expiration.

[Deferred Payment Option Definition]

No matter whether the option is exercised on original expiry or exercised earlier like an American option, the payment of a deferred payment option is always made at the original payment date.

[Deferred Option Month Definition]

A deferred option month is the same as the deferred month.

[Deferred Month Definition]

The number of deferred months is important when calculating the time value of an asset. The lesser the number of deferred months, the lesser the time value of an asset as it does not take as much time for time decay to set in. The more the number of deferred months, the greater the time value of the asset.

[Deep Out Of The Money Definition]

Options that are deep out of the money do not have any intrinsic value. If exercised, they will lead to a loss on the option trade or investment.

[Deep In The Money Definition]

The delta of a call option that is deep in the money is closer to 100%. In other words, a deep in the money option is an option that will yield profit if exercised at the present time.

[Debit Spread Definition]

Profit is made from a debit spread when there is a significant change in the price of the underlying asset.

[Death Put Definition]

The death put is only redeemable on the demise of the original owner, in which case the death put option will be redeemed at par value and paid to the estate of the deceased so that the beneficiaries can receive the proceeds.

[Currency Option Definition]

Investors use currency options to hedge against unfavorable movements in the exchange rates. In the currency market, a fluctuation of just 10 cents can means a large loss for a company about to convert millions or billions of one currency for another for transactions.

[Credit Spread Option Definition]

Credit spreads are issued by a company's bond holders to hedge against a negative credit event. The buyer of the credit spread option receives a premium on initiation of the trade, but assumes part of all of the risk of a credit spread option and will be required to pay the option seller if the spread between the company's debt and an official benchmark widens.

[Covered Writer Definition]

Covered writers derive profits by receiving the premiums paid by the purchaser of the options contract. The trader aims for a double profit as a result: profiting from a fall in the price of the asset and also from the option expiring worthless, allowing him to keep the premium as well.

[Covered Straddle Definition]

This is a bullish strategy which provides for limited profit potential but has unlimited loss potential. Only the call position is covered. The put aspect of the trade is naked.

[Covered Combination Definition]

This trading option is mostly used by traders who favor the bulls, and are seeking additional levels of premium income. This is because premiums are received on the put trade and paid on the call trade, but the net is a positive, credited to the trader's account.

[Covered Call Definition]

A covered call is a hedge strategy where the trader owns the underlying asset, which serves to reduce losses if the covered call expires in a losing position.

[Covered Bear Definition]

This is a less risky style of trading. The returns are reduced than if the bear was a naked bear, but then if the trade goes wrong, then the loss on the covered bear can be offset by owning the stock itself.

[Conversion Arbitrage Definition]

This is a risk-neutral strategy that is used to profit from overpriced call options. It is used to profit from the difference in the call option's selling price and the put option's buying price.

[Condor Spread Definition]

The real profits in a condor strategy are to earn from the net premiums. Since there are two debit and two credit spreads, the trader will pay premiums on 2 of those trades and receive premiums on the other 2. The trade is set in such a way that the credit premiums outweight the debit premiums so that the premium amount is positive and credited to the trader.

[Compound Option Definition]

There are four types of compound options: a call on a call; a call on a put; a put on a call and a put on a put. They have the advantage of large leverages.

[Commercial Visa Definition]

If an individual or a team of businessmen from a company have to travel abroad to close a business deal, purchase goods for their businesses or carry out activities related to their business, then they have to travel with commercial visas.